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Comment by adamio | Hacker News Reader

What about rent or mortgage? In most major cities low rent could be easily 35% of after tax income already

Not that I'm recommending it, but this strategy is radically different from the norm, so it will require you to be abnormal. Mortgage @ 35% of net income is the norm.

Unless you earn 3X the median in your area, living on 35% of your salary means living with below average expenses. Whatever your salary, you will probably think normal is normal for your peer group which usually is closer to whatever you earn than median so even if you earn much more than median you will probably be required to be abnormal. Being abnormal is hard to decide.

However you achieve this, it will probably require you to make lifestyle changes that most people like you consider unacceptable. Move someplace cheap. Start a commune in an old mansion with 6 other families/couples. Live in a cabin. Squat. :) Live with your parents. Don't own a car.

Whatever the specific setup, spending 25-35% of your salary is unlikely to be a moderately different from the norm in your peer group. But, also not impossible.

Consider:

(a) Students, broke artists, unemployed and lots of other people do live on very low incomes. It's possible. If you earn the median, then 10-20% of people in your area live on 35% of what you do. Matt mentioned 14k p/a as a grad student.

(b) This is the "find a way" scenario like a startup. Startups may require you to deal with ungodly stress work, 100 hour weeks and do "impossible" things. If retiring within 10 years is valuable to you, it might be worth it.

Depends on how much home you go for; most people buy or rent far more home than they need or can afford. Sure, if you're in the middle of Mountain View or NYC, even the tiniest apartment can be exorbitantly expensive, both in absolute terms and as a fraction of salary (which does not scale to the same degree). Those locales are fundamentally expensive to live in unless you get very creative. On the other hand, in most other locales, if you're willing to live on the high end of "student" rather than on the high end of "professional", while getting paid like a professional, living on a small fraction of your income is quite feasible.

And in any case, there's no sense giving up on the idea completely even if you can't hit the most aggressive savings rate; even if you only save 50% of your income, you can retire after 17 years, which puts you on track to retire in your early 40s instead of your late 60s. Even better, as you progress through your career, your salary will likely increase, but your spending doesn't have to match. 50% of your salary right out of college may only be 25% of your salary later on.

Indeed, "dumping raises into savings" was one of the smartest things I ever did, financially. When I moved from working from a university to working at a mid-sized corporation, I got roughly a 25% pay bump. Every single dollar of that went into savings (fully funding the 401(k) and Employee Stock Purchase Plan, etc.).

This did a couple of things... it kept a lid on living expenses because there was no additional cash, but it also provided an easy way for me to raise my savings every year without having to make too many conscious choices, just by moving every pay raise into savings.

So I just did the math. I work at a startup in NYC and could probably make more money at $BigCo. I should be able to save %50 of my current salary and be able to pay rent and have a decent daily spend to the point that it's 2AM and I'm furiously recalculating a lot of scenarios. That has to count for something. :)

Mr. Money Mustache will probably tell you to move to a different place[1], saving time and money by reducing the commuting time[2] etc..

NB I neither agree nor disagree with his ideas (still have to decide.. :))

[1] http://www.mrmoneymustache.com/2011/09/28/get-rich-with-movi... [2] http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-c...

By my calculations, it's generally much better to live in a high-cost area while earning a high wage, than to live in a low-cost area while earning a low wage. This is because a lot of products out there have a fixed cost which isn't based on geography (think iPhones). A higher wage makes it easier to purchase those items.

My calculations differ, though they are probably based on different locations than you used, which changes the numbers.

Median incomes are 75% higher in the high cost area, but housing costs are 200-400% higher, which, being a major expense for just about everyone, quickly erodes any gains you might make on the income side. Services, like internet connections, were also more expensive in the high cost area. Goods like iPhones are the same in both places, you are right, but is actually a larger portion of your disposable income because of the higher living costs.

The one place you might be able to make gains in the high cost area is if you struggle through paying those 400% higher housing costs with the intent of selling your home and moving to a low cost area later in life. Then you can ride that significant equity you have built, assuming the property maintains or increases in value.

That said, my preferred method is to live in a low cost area and work in a high cost area (telecommute).

That said, my preferred method is to live in a low cost area and work in a high cost area (telecommute).

yes but it also depends how you consider in your calculation the costs of telecommuting (costs of travelling, time lost etc..)

I'm thinking about this right in these days, as I'm living and working in a quite rich but expensive country (Luxembourg) where real estate prices (rent&purchase) have grown a lot in the past years, and are still growing (two digits increase of prices yty), while you have surrounding border areas (Belgium, France, Germany) that are way cheaper (half or even less per square meter) but are located 30-40km away with really congested roads or slow public lines (at least 45min per trip, easy to become 1-2hours in case of accidents or traffic jams)

> yes but it also depends how you consider in your calculation the costs of telecommuting (costs of travelling, time lost etc..)

Since it seems that English isn't your first language, I thought I'd point out that "telecommuting" means you work from home, and "commuting" means that you travel a long distance to get to work. So, there are no costs or time lost when telecommuting, because you don't have to go anywhere.

The commenter you're replying to is saying he works from home in a low cost area, but works for a company in a high cost area (possibly hundreds or thousands of kilometers away).

you are right I'm not native English speaker so thanks for spotting that, I've always used "remote working" or "teleworking" for describing that, but not telecommuting (maybe because commuting means "travelling to work" and tele means "over a distance", so the compound doesn't make too much sense for me, at least if you don't put a negation somewhere :D)

I think the compound resonates with us because it reminds us of both "telephone" and "telegraph" which work remotely and electronically.

And even if all costs scaled completely linearly with your earnings saving 20% of your income in a high-cost/high-wage are will earn you more money than 20% in a low wage area.

You can always move to the low-cost area when you are ready to stop working.

So, the optimum would then seem to be to live in a low cost area making a high wage.

It can be done. My wife and I both work remotely and are able to earn significantly more than the average income for our area. She is an hourly engineer and I work as a consultant. We get to live where we want and do the work we want. We could both make significant;y more if we were to relocate, and we have in the past, but we enjoy the lifestyle here and are happy to give up some top end income for quality of life.

I tend to agree. The other point to consider is that if you are (for example) putting 30% of your salary in to a mortgage in a high cost high income area, you will have a much more valuable asset by the time you have paid off your mortgage than you would if you put 30% of your salary into a mortgage in a low cost low income area. In fact you may well have enough equity to fund a nice retirement in a cheaper part of the country.

Houses are pretty cheap, compared to how much money you need to retire.

Also as a rough estimate, most yearly rental prices are 5% - 15% the value of the property. If you get a long mortgage (in the UK, 30 years is pretty common) you can easily pay less per month than you would rent.

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